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Terms of trade shocks and taxation in developing countries

Author

Listed:
  • Gonzalo Hernández
  • María Alejandra Prieto

Abstract

We find evidence suggesting that economies with a tax structure more oriented toward indirect taxes –rather than direct taxes– tend to mitigate the effect of terms of trade shocks on output fluctuations. This finding might be particularly important for lower-income countries since the negative welfare effects caused by macroeconomic volatility in the absence of consumption-smoothing mechanisms are more severe in developing economies exposed to external shocks. Additionally, some of these economies are attempting to reorient their tax structure toward more direct taxes following the standards in advanced economies. ****** Encontramos evidencia que sugiere que las economías con una estructura tributaria más orientada hacia los impuestos indirectos tienden a mitigar el efecto de los términos de intercambio en las fluctuaciones del producto. Este hallazgo podría ser particularmente importante para los países de bajos ingresos, ya que los efectos negativos sobre el bienestar causados por la volatilidad macroeconómica, en ausencia de mecanismos de suavización del consumo, son más graves en las economías en desarrollo expuestas a choques externos, y porque algunas de estas economías están intentando reorientar su estructura tributaria hacia impuestos directos, siguiendo los estándares de las economías avanzadas.

Suggested Citation

  • Gonzalo Hernández & María Alejandra Prieto, 2020. "Terms of trade shocks and taxation in developing countries," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, vol. 39(81), pages 613-634, July.
  • Handle: RePEc:col:000093:018260
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    File URL: https://revistas.unal.edu.co/index.php/ceconomia/article/view/80207/75748
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax structure; output fluctuations; developing economies; terms of trade;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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